Medical Device Regulatory, Reimbursement and Compliance Congress

1. Medical Device Regulatory, Reimbursement and Compliance Congress Value-Based Pricing: The Good, The Bad, and The Ugly March 27, 2008 Randel E. Richner, BSN, MPH President, Founder

2. Reform “There is no problem, however difficult, which if we roll up our sleeves, we cannot completely ignore”. | --George Carlin

3. Policy Overview 3 • Technology Is Good. • Technology per se, does not “cause” increased health care costs… • It is only randomly possible to accurately detect the true value of technology due to a fragmented care delivery, migration of services, and system issues (complex overlay of private/public insurers to track and monitor care and value). Misaligned payment systems may cause perverse care incentives and artificial determinants of “value”. • The calculation of risk in determining the threshold of “value” is largely ignored.

4. New, Innovative and Complex Technologies 4 • Devices are getting smarter and are providing more information • Intelligent devices • Biotechnology Revolution • Personalized Medicine • Combination Products • Information-Rich Therapeutics

5. Promote improved care Secure satisfactory reimburse-ment. Drive your message into the market Position for Market Penetration Establish a network of advocates Promote clinical utility Launch post-FDA Validate Introduce Disruptive Product Typical Market Development Early adopter Early Majority Late majority Prove PrincipleDrive AdoptionChange Standard

6. Length of Reign: • Continuous improvement • Unsatisfactory alternatives explored • Upgrade to stents % Penetration • Intensity of adoption: • Highly respected pioneer • Decreased procedural costs • Improves patient satisfaction • Shortens LOS • Uptake: • Replaces CABG • Moves procedure from OR to CCL • Creates new medical specialty Time (in years) Innovation: PTCA

7. Technology Assessment and Value

8. 8 Technology Access Decision-Making Occurs at Multiple Levels Organizations Involved • CMS, (Global--International) • Major national third party payers and benefit managers • Medicare Intermediaries and Carriers, DMERCs • Regional health plans • Medicaid administrators • IDNs • Physician groups • Hospitals

9. Treatable Population FDA Label Indicated Population CMS Covered Population FDA/CMS Divergencies 9 • FDA regulator: public health/safety • Safe products • Assumes Market sorts out clinical value and comparative effectiveness • Standards vary by risk CMS regulator: purchaser • Improved health for good value • Increased focus on clinical benefits blur into public health effort • Decisions are broad, policy-based Uncertainties: How will CMS define and pay for incremental benefit? How long will full coverage of labeled indications take?

10. Evidence Development and Value Technology Assessment: • Evidence Based Medicine: • Coverage with Evidence Requirements • Practice Based Management • Pay for Performance • Quality Outcomes • Outcomes Assessment: • Cost-Effectiveness Analsyis • Outcomes Demonstration Projects • Overuse, Underuse, Misuse • Superior Medical outcomes • Least Costly Alternative • Substantial Equivalence • Comparative Effectiveness

11. Type of data you collect depends on the category of product

12. Payment Misalignments and determining Value

13. Medicare’s Complex Reimbursement Processes 13 • Each payment system has its own rules, based in statute, and uses data from the providers it pays • Different payments in different sites for the same items or services • Can create inappropriate incentives • Providers learn to balance underpaid/overpaid services to achieve bottom-line • Benefits of less invasive services, migration to less costly settings, not recognized in value calculations

14. PROSPECTIVE PAYMENT SYSTEMS: Inpatient PPS Outpatient PPS Inpatient Rehab Long-term Care Hospital Inpatient Psych Skilled Nursing Facility Home Health FEE SCHEDULES: Physicians Ambulatory Surgical Centers Clinical Labs Durable Medical Equipment, Prosthetics & Orthotics Ambulance ESRD 14 Major CMS Payment Systems

15. PaymentSite Utilization OPPS $513 56% ASC $446 22% PFS-PE $177 6% 15 Example of Payment Divergences Diagnostic Colonoscopy – CPT 45378 1.15 million procedures performed in 2003 physician fee schedule (PFS) practice expense (PE)

16. Home Hemodialysis provides great value; providers limit adoption Major clinical benefits LVH, heart failure improvement Anemia Rehabilitation/QOL 15-25% annual savings potential ($10-17K of 70K costs) Kaiser promoting home dialysis VS.

17. Daily home dialysis challenges Largest savings in hospital costs, which are part of a different budget (Part A vs. Part B) and are not realized by the dialysis provider

18. Risks

19. Consider Unique technology-specific issues • Risk: should the level of “evidence” be the same for a new MRI test as for a new brain aneurysm stent? • Operator Skill: How does one design the impact of physician end-user skills on patient outcomes and study design? • Life Cycles: How do we expect to use traditional study approaches with minimum of 3 years from start to pubs when technology changes within a 2 years? • Combinatorial science: How does the study account for the manufacturing changes (polymers, voltages, wires and metals, drugs) on the effect of patient outcomes? • Physician end-user involvement: How are physicians mobilizing to determine the outcomes critical to study to determine value?

20. Log Scale 3 Orders Of Magnitude Drug Risks:Near-Term Fatalities Per Person-Year

21. Transportation

22. Solution 1: Value • New Study Paradigm. Encourage access, innovation • Risk-based stratification of evidence • Physician end-user involvement • Focus on treatment comparisons rather than individual product comparisons • Electronic records, and HIT advances; invest in this infrastructure. • Gold standard, database, epidemiological studies • Bayesian analysis: “preexisting” data are constantly adjusted using new data as acured: potential reduction of sample sizes, and ability to continually update probability of success or failure. • Collaborate with NIH, AHRQ, Private, public entities. • Global interactions and use of data

23. Solution 2: Reward the Future • Reward preventative services and interventions that can clearly demonstrate a significant value over existing products. • Integrate nanotechnology, IT, molecular diagnostics and combination therapies (drugs/devices) into existing payment schemas. • Evaluate new medical technologies at CMS through the Council of Medical Technology and Innovation; adapt payment mechanisms. • Use an episode of care as a reward technology that moves from acute to home setttings (works in Kaiser-like systems where physician payment is not linked to utilization; providers and payers are aligned) • Include physician payments and incentives in the episode of care. • PREEMPTIVE, PREDICTIVE, PERSONALIZED, and PARTICIPATIVE

24. Solution 3: Value includes Risk • Avoid the temptation to regulate when events occur before the technology is tested thoroughly. • Partner with industry and medicine on improved methods to accurately measure risk. • Use FDA-critical path initiatives as model.

25. Progress in the leading technology of our time has been so dramatic that it has brought about, time and again, swift qualitative changes in the material world around us, change that surely cannot be expressed simply as variations in prices or quanities”. • Trajtenberg, Economist, 1990.

26. www.neocuregroup.com Founder & President: Randel E. Richner, BSN, MPH 508-655-6161  Richner@neocuregroup.com